Saturday evening. Friend forwards a factsheet. Same CAGR. Two different stories.
Two funds. Same 14 pct CAGR. One you sleep through, one rattles every quarter. The CAGR did not tell him which. The Sharpe did. The number nobody reads on the page after the return is the one that decides whether you actually hold.
0.58
Fund A . Sharpe
14 pct CAGR. 12 pct annualised volatility. The boring large cap stack. Calm tape, modest hole on the bad days, you stay in your seat.
VS
0.32
Fund B . Sharpe
14 pct CAGR. 22 pct annualised volatility. The exciting thematic. Same end point, double the heart rate, half the rupee earned per unit of risk.
Same return. Almost twice the risk on one. The CAGR makes them twins. The Sharpe shows you only one was worth the ride. Risk free rate 7 pct in both cases. Formula on the next card.